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Q.

If the borrower fails to repay the loan, the lender has the right to sell the ____ to obtain payment.


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Detailed Solution

If the borrower fails to repay the loan, the lender has the right to sell the collateral to obtain payment. An asset that a borrower owns and uses as a guarantee to a lender till the loan is repaid is called collateral. Thus, collateral reduces the risk of the lender as collateral is an item of value. The collateral can be land, car, house, livestock or even deposits with banks. Collateral is one of the terms of credit, and it may vary from one bank to another, depending upon the nature of the lender and borrower.
 
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